Hyundai Motor may halt production at China auto factory

Production may be halted at a Hyundai Motor plant in China amid sluggish sales in the world’s largest auto market, the carmaker said in a statement.

Beijing Hyundai Motor, a 50-50 joint venture between Hyundai and China’s BAIC Motor, is currently reviewing options and considering the suspension of operations at one of its plants.

To improve competitiveness in China and ensure profitability “a production halt and a plan for efficient operation are being considered for Plant 1 [in Beijing],” Hyundai Motor said.

The statement explained that no timeline has been proposed and that a complete shuttering of the aging plant, established in 2002, is not being considered.

The company added that Beijing Hyundai has either let go or reassigned 2,000 workers.

The announcement comes as the Chinese unit has struggled with overcapacity amid weak sales in recent years. Despite having total production capacity of 1.65 million units at five plants in the country, annual sales over the past two years for the venture failed to reach even half that amount.

The joint venture has been struggling in the face of increasing competition, while a diplomatic dispute over Korea’s deployment of a U.S. missile defense system spilled over to hurt the automaker in 2017.

Although the joint venture sold more than one million units each year from 2013 to 2016, the figure dropped by over 30 percent to 785,006 units in 2017. Sales last year totaled about 790,000 units.

Analysts said Thursday that the move would help recovery.

“840,000 units are expected to be produced this year, similar to levels in 2012 when it recorded 860,000,” KB Securities said in a report. “Halting production at Plant 1, which is able to produce 300,000 units annually, will improve Beijing Hyundai’s utilization rate by 7 percentage points.”

Beijing Hyundai’s net profit rises by 210 million yuan ($31.3 million) for every 1 percentage point increase in its plant utilization rate, according to KB Securities.

Hyundai plans to sell a total of 4.68 million vehicles this year globally, a 2 percent increase from the previous year’s sales, as it looks to recover from disappointing results. The company recorded a net loss of 203 billion won ($179 million) in the final quarter of last year.